My Company

The MyRA is really designed for someone who has little or no savings and wants to do something simple. You wouldn’t have gleaned that from the State of the Union address, which made it sound like something wonderful for most Americans.

OK, I’ll admit it: I was one of the few who watched President Obama’s State of the Union address. What can I say? I’m an information junkie. To me, the speech was boring and a retread of past speeches, except for the unexpected announcement on the My Retirement Account (MyRA).

The MyRA got my attention. And as the pundits have talked about it now for a week, I imagine many Americans are wondering what it is. As such, it is important for advisors (financial planners, insurance agents, etc.) to know the basics about it and, even more important, why it’s nearly a useless savings tool.

What are the minimum contributions? $25 to open an account and then $5 per paycheck

What are the maximum contributions? Over a 30-year period, investors can accumulate up to $15,000 (after which, the money can be rolled into a Roth IRA).

Investment options: Government securities investment fund (G fund)

The MyRA is a payroll deduction plan employees can use through employers.

Principle protection

The president touted the fact that money can never be lost in the MyRA. That’s true because consumers are forced to invest in the G fund (the same investment used in government employee Thrift Savings Plans).
Historical returns of the G fund

OK, so if the only investment option is the G fund, what are the historical rates of return? In short, they are pitiful. The following are year-ending 2012 numbers.

Do you think the “average” investor will like the above-listed rates of returns? In my opinion, they are pathetic.

Better off not using the MyRA

Investors would be better off taking their money home, paying taxes with it (especially considering most of those contributing are in the lower-income tax brackets) and putting that money in any number of different places.

Hype vs. reality

Isn’t this what our federal government is all about these days? I think so; and this is a classic example of a benefit put forth by the
government that mathematically not only has little value but, in my mind, will cost employees money. (It will cost them money because they could grow more money by paying taxes on their income and investing it in any number of places that are expected to generate significantly higher returns.)

Summary

The MyRA is really designed for someone who has little or no savings and wants to do something simple. You wouldn’t have gleaned that from the State of the Union address, which made it sound like something wonderful for most Americans.

I wrote this article to give advisors the facts about MyRAs, so that you will know what they are when clients ask, and will understand that they're useless tools to use when growing their wealth. Then you can offer them alternatives that, in your opinion, will generate more money in retirement.